Can I rent out extra rooms to pay a recent loan?

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masterandcommander
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Can I rent out extra rooms to pay a recent loan?

Post by masterandcommander »

Hi,

My son moved out of the house last month and I’ve got two rooms that are lying empty. I don't want them to go to waste so I’m looking to put them up for rent.

You see, I’m currently repaying a loan that I took out a few years back. I want to know if I can use the money from renting out the rooms to repay the loan. Also, what things do I need to consider before renting out the rooms?

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Otto Dargan
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Re: Can I rent out extra rooms to pay a recent loan?

Post by Otto Dargan »

Hi and welcome to the forums masterandcommander,

You may be able to pay an existing loan debt by using the money you make from renting out the extra rooms at your house. However, to get approved for this, lenders may require a declaration of your rental income on your tax return.

A portion of your expenses, such as interest on investment loans, council rates, and water rates, may be deducted depending on the percentage of the property that you rent out.

It should also be noted that since your principal place of residence will be producing income, some capital gains tax may be applicable on the property if you decide to sell it.

It is recommended that you talk to your accountant about how the Australian Tax Office (ATO) will assess your situation before you rent out your spare rooms. Any benefit from the rent income that you receive may be made ineffective if the capital gains tax is too high.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
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masterandcommander
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Re: Can I rent out extra rooms to pay a recent loan?

Post by masterandcommander »

Hi, Otto. Thanks for the swift response. You mentioned that I may be able to deduct certain expenses. Could you be more specific?

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Otto Dargan
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Re: Can I rent out extra rooms to pay a recent loan?

Post by Otto Dargan »

Hi masterandcommander,

There are certain investment property deductions that you may be eligible for if you decide to rent out a certain percentage of your home. For instance, you may be able to claim running costs, such as rates and water, as well as depreciation, and other non-cash costs.

You may also be able to reclaim the interest on the loan that was originally used to buy the property, although it can be a very complicated process. You may be restricted to claiming interest on an existing loan value, i.e. the original loan balance that was used to buy the property, before any other drawings.

Suppose you paid back $100,000 on a loan amount of $400,000 that you used to buy a home. You redraw $50,000 to buy a new car. Although your loan amount is $350,000, you would only be able to claim interest on the $300,000 that is connected with the original purchase.

You can have a look at our website to find out more about renting out part of your home. You can also call one of our expert mortgage brokers on 1300 889 743 or enquire online to find out more about paying your mortgage using the income from rent.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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masterandcommander
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Joined: Wed Jul 03, 2013 7:29 pm

Re: Can I rent out extra rooms to pay a recent loan?

Post by masterandcommander »

I had no idea we could make such claims! Your website seems to be very informational but I definitely need more advice on what I need to do, which is why I’m planning to hire your services. I’ll give you a tingle in the arvo the day after tomorrow. Talk to you soon.

swag
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Joined: Thu Mar 12, 2015 5:44 pm

Re: Can I rent out extra rooms to pay a recent loan?

Post by swag »

Hello there,

My friend and I are looking to invest in a property together but we’ve heard that joint ownerships can be very complicated. We landed on this forum as we were looking into tax implications involved (the deductible expenses caught our attention).

We know we’re going out of topic here but does anybody in this forum know about the complications that arise with the joint ownership of a property?

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Otto Dargan
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Re: Can I rent out extra rooms to pay a recent loan?

Post by Otto Dargan »

Hi swag,

There are several complications linked with joint ownership of a property. Normally, investors split the loan, income, and expenses 50/50 each for tax purposes, regardless of who paid for it.

There may be disagreements over selling the property if the co-owner of the investment property is someone other than your spouse. The reason may be the difference in tax profiles that each individual has.

It is recommended that you and your partner define clear investment goals that meet both of your requirements before buying an investment property together. You may also choose to decide the terms if one person wants to sell the property in the future and the other does not.

Disagreements may be fairly common. For instance, your friend may need the equity for something else because of which you may be forced to buy or sell the property even if you don’t want to. In order to avoid such situations from breaking down your friendship, your partner and you may want to have a clear exit strategy.

Have a look at our website to learn more about joint ownership of a property.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

swag
Posts: 5
Joined: Thu Mar 12, 2015 5:44 pm

Re: Can I rent out extra rooms to pay a recent loan?

Post by swag »

Your website helped answer a lot of our questions. Thanks so much for your help, mate. We’ll give you a ring directly if we decide to proceed with our plans. Hopefully, we’ll speak with you soon. Goodbye for now.

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